Korea eases REIT rules to broaden property investment

The land ministry revised the enforcement decree of the Real Estate Investment Company Act to allow real estate investment trusts to hold more securitized debt and take larger stakes in companies running senior housing facilities.

Under the amendment, REITs may acquire securities equivalent to asset-backed securities issued by entities designated by the Minister of Land, Infrastructure and Transport, based on monetary claims secured by real estate, in excess of 5 percent of their total assets. The revision also extends an existing allowance for REITs to hold more than 10 percent of the issued shares of a company whose business is entrusted with the operation of senior welfare housing, a threshold that will now apply as well to companies running residential facilities for the elderly.

The government is separately pushing to mobilize private investment through a 1 trillion won ($749 million) development anchor REIT that will supply bridge loans at below-market rates to viable development projects struggling to raise funds.

"The launch of the development anchor REIT will serve as an opportunity to breathe new vitality into excellent development projects that are having difficulty raising funds, especially housing supply projects in the Seoul metropolitan area and regional priority projects," said Kim Young-kuk, head of the housing and land office at the land ministry.

Korea's listed REIT market currently has 25 companies with a combined market capitalization of 9.7 trillion won ($7.26 billion) and assets of 19.4 trillion won ($14.5 billion). Eight of them hold overseas assets, with a market capitalization of 1.3 trillion won ($973 million) and assets of 3.6 trillion won ($2.7 billion).

The government said it will continue monitoring overall market conditions and review institutional improvements to protect investors and minimize risk, and began joint inspections with related agencies on April 28 to respond strictly to any violations found.